Middle class parents spend a fortune on private schools

Ian Wray with his daughters, Hannah, 14, and Rebecca, 12. The girls are students at Penrhos College south of Perth. The combined fees are $42,000 a year, and uniforms and computers add a few thousand dollars to the annual cost.
Photo: Aaron Bunch

Ian Wray and his wife Kathryn were determined to give their daughters Hannah and Rebecca the best education they could.

There was just one obstacle. Their combined incomes of about $130,000 – he is a senior sergeant in the Western Australian police force, she a part-time education assistant at a local primary school – didn’t stretch far enough to cover the fees and their other living expenses.

Hannah and Rebecca are year 11 and year 7 students at Penrhos College south of Perth, an independent Uniting Church school for girls. The combined fees are $42,000 a year, and uniforms and computers add a few thousand dollars to the annual cost.

The Wrays’ financial advisers at the
ANZ Banking Group
suggested that Wray, who’s 59, transition some of his police pension to retirement to generate enough income to cover about three-quarters of the fees. Savings with the Australian Scholarships Group also help.

“We are of the belief that we only get one chance to offer them the best education, and we have seen them flourish in all that they’ve been offered at private school."

“We are definitely getting value for money," Wray says, citing the improved academic opportunities, the level of involvement parents have and the school’s “mind-heart-body-spirit" approach to a rounded education. The fees are up 6 per cent this year, down from 8 per cent a few years ago when wages in the west were growing more rapidly.

“I think the school does realise that money is harder to come by," Wray says.

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The Wrays may be going to unusual lengths to cover their school fees, and earning a bit below the average income for top private school households. But they are typical of many families who make great sacrifices to keep paying school fees: putting them on the mortgage, working two jobs and tapping grandparents.

Fees rise at twice inflation

Top private schools keep raising their fees, at more than twice the rate of inflation for the past decade, and ploughing the surplus into better and better facilities and educational experience. And the Australian middle classes keep ponying up. They may complain privately, but “we have not yet hit the price point at which significant numbers of people would walk away", says Grattan Institute school education expert Ben Jensen. Fee increases continue to outstrip inflation, although there is some restraint in particular markets. Year 12 fees are up 5.9 per cent to $26,043 at Melbourne’s ­Methodist Ladies’ College this year, 5 per cent to $34,020 at Geelong Grammar, and 4 per cent to $20,140 at Canberra Grammar School. In Sydney they’re up 4.8 per cent to $30,291 at The King’s School, 5.5 per cent to $32,179 at Sydney Church of England Girls Grammar School, and 4.9 per cent to $31,116 at Cranbrook.

Parents have sound reasons for choosing private schools. Many public schools are not a viable option for some parents, and the belief that a private school education will “set their kids up for life" is to some extent true, says Michael Carr-Gregg, a psychologist based in Melbourne’s eastern suburbs.

The fees buy great facilities for extra­curricular activities like sports, arts, debating and other desirable pursuits. Some of the facilities at the top end of the market would be beyond the dreams of most Australians – stockyards and virgin forest at King’s, a “world class equestrian centre" and ­“positive education" collaboration with American happiness guru Martin Seligman at Geelong Grammar, southwest of ­Melbourne; a “Nanjing campus" offered at Melbourne’s Caulfield Grammar School.

For some others it’s a bit of a struggle to keep up. Canberra Grammar has had to moderate its fees because it is competing against schools with similar parental demographics that had their Commonwealth grants “grandfathered" (indexed in per­petuity) under the Howard government’s SES funding model, and the Canberra ­market won’t bear the very high fees able to be charged by big Sydney and Melbourne schools.

As a result the school has not been able to maintain the pace of new building undertaken by competitor schools. It’s building a centre for “education in the Asian Century" thanks to an $8 million donation from businessman Terry Snow. But it has had to run a very tight ship for a long time to maintain and develop buildings and meet “the increasing expectations of the community" in terms of class sizes and quality of buildings and information technology and communications facilities, says principal Justin Garrick. Enrolments remain solid but “we are not sitting on long waiting lists", Garrick says. Uncertainty surrounding public service jobs under the Abbott government has made some parents delay enrolments, and the school has maintained fee increases at around 4 per cent for the last few years.

It’s a non-negotiable expense

“It’s a sensitivity to the means of our parents to pay and understanding that they are making in most cases very significant sacrifices and working extremely hard to be able to give their kids the opportunities we can provide."

For many parents it’s a non-negotiable expense, says financial adviser Ryan Love, principal at financial planners Apex Partners, especially if they attended private schools themselves. “In all the cases I deal with, it’s for the sake of the kids", he says. Parents will put more debt on their property if they can’t pay the fees out of current income, or the non-working parent will go back to work full time.

They will find a way to stump up even if it causes that a lot of stress, says Carr-Gregg. This can lead to “do you know how much this is costing us to send you there?" recriminations, which are bad for kids – who may not have asked to be sent in the first place – and parents alike.

Education inflation generally rises higher than consumer prices, as do prices for other non-traded goods such as health care.

Still, that so many schools have been able to continue hiking their prices at twice the CPI for so long suggests the power in this market lies with the schools, says Chris Ryan, who runs a centre for education economics at the Melbourne Institute for Applied Economic and Social Research. Parents believe they are paying for a better education and “slightly better attitudes" and discipline to be instilled into their children, he says. As well, they expect returns from the networks their kids can develop, and from increased chances of getting into a prestige course at a good university, which can lift lifetime earnings.

“I think there are some payoffs to attending private schools that have a clear value," Ryan says.

In a recent study, Long Run Effects of Catholic Schooling on Wages, Nikhil Jha and Cain Polidano, of the Melbourne Institute, sought to control for family background. They found that Catholic schooling yielded 12 per cent higher incomes in prime careers – 15 to 25 years’ experience – than public schooling, and that the same held for independent private schools, which make up most high-fee private schools. This was more likely due to private schools developing the “non-cognitive abilities" needed for promotion to ­management, than due to the better social networks private school education might facilitate.

Reflection of rise in top incomes

The inelasticity of the market for elite schools in the face of persistent price increases and a slowing economy is also in part due to how well higher-income households – the predominant source of private school parents – have done in the past few decades.

“The rise in top incomes that Australia has seen over the past generation has driven up prices of many of the things that rich Australians buy, including art, waterfront homes and not surprisingly places in top private schools," says Andrew Leigh, shadow assistant Treasurer and author of Battlers and Billionaires.

Despite the increased demand, only a few of these schools are substantially expanding the number of places they offer, which means demand continues to outstrip supply. A shortage of land in the suburbs where most of the customers live – and the hazards of negotiating planning and regulatory hurdles – are two constraints. Established inner-suburban campuses are full. Those few that are opening new campuses are forced to do so on the outskirts, which are judged less desirable by some parents.

Competitive pressures may exist “in various forms" in the market for high-end schools, but “they do not exist in the way they would in another market", Jensen says.